PEMEX Discovery Could Coincide with Eni’s Prolific Development

The National Hydrocarbons Commission (CHN) has given PEMEX permission to pursue exploratory drilling at a shallow water field that encroaches on an assignment controlled by supermajor Eni.

The discovery of the Atoyatl-1EXP exploratory well, which falls under assignment AE-0149-M-Uchukil, is expected to infringe upon the Mizton field of the Italian IOC. The Atoyatl well represents the highest probability of geological success and is estimated to contain the largest oil resources within the NOC’s allocation. CNH has proposed for the shallow water conventional reservoir to be shared by the two oil giants. This would represent the second case of unionization between PEMEX and a private operator, the first being the controversial Zama oil field, which led to a drawn-out arbitration case with American service provider Talos Energy. 

Alma América Porres Luna, Commissioner, CNH, brought up the possibility that PEMEX and Eni would share a participating interest in the oil field. “There seems not to be much change, we do not see major missteps, but it is important to say explicitly if there was a shared oil field… if the site’s conditions are the same, then [PEMEX and Eni] should clarify that,” said Porres.

The average prospective resources considered to be at risk are estimated to be around 23MMb/d of crude oil, which translates to a 39 percent chance of exploration success. The main objective of this field is to explore the Middle Pliocene. The play will be drilled in a vertical trajectory with a depth of 3,345m.

The distance between the exploratory activity set to be carried out by PEMEX and Eni’s Miztón assignment is only 3.7km, according to the document of authorization released by the CNH on May 10. Many industry commentators have voiced their concern that Eni could face the same fate as Talos, losing out entirely on the operation. The Houston-based service provider felt politics had more to do with the CNH’s ruling than technical experience or financial considerations. Having made the discovery of the estimated 1 billion boe reserve, Talos expected to be awarded at least a 50 percent share but failed to come to an agreement with PEMEX as the CNH eventually intervened in favor of the state-owned company. SENER then determined that of Talos’ 35 percent participating interest before the verdict, it will only maintain 17.35 percent.

There are, however, major differences between the two sites. Most notably, Eni already has its operation up and going, with significant production output. It therefore does not have to rely on PEMEX infrastructure to collect and transport output, as would have been the case for Talos. Instead, in the event of unionization, it would be PEMEX who would have to pay Eni to extract its oil and use its facilities, assuming the NOC chooses not to invest the significant time and money required to set up its own production framework. 

Eni started production in the Mizton Field, which forms part of Mizton-2DEL assignment, in 2019. The IOC haf been awarded the contract for Area 1, a 67km² block inside a much larger block owned by PEMEX, which also includes the Tecoalli and Amoca fields, in 2014. In recent months, following the installation of the first privately operated FPSO unit in Mexican waters, Eni has made significant headway at Mizton. Across the three Area 1 fields, production totaled 18,881b/d in March, doubling the output of 9,336b/d just one month previous. 

Once the relevant information is gathered, both parties will have the opportunity to make a proposal detailing how investment and production costs are shared. PEMEX is required to deliver survey data obtained from drilling at the Atoyatl-1EXP well to the energy ministry (SENER) that will then request the corresponding geological information from Eni’s side. The data is then passed on to the CNH, who will issue a decision regarding the nature of the shared reservoir. 

The Head of Latin American Research at Welligence Energy Analytics, Andrés Armijos, noted in an interview with S&P Global Commodity Insights that it is perhaps too early to speculate on the nature of the potential unitization, as PEMEX first needs to start drilling at Atoyatl to prove it does indeed extend into Mizton. There is a widespread market perception, however, that rather than sharing the reservoir, PEMEX might choose to make use of existing infrastructure to develop several small pockets as a more cost-effective and commercially viable option. 

Nevertheless, given the current political climate, industry leaders will be observing the arbitration process closely to see just how the Mexican government determines the future of one of the country’s most prolific privately operated fields.